ACCT 3401 Exam 2

For 2025, Jordan is single and earns $6,000 of qualified overtime compensation (the FLSA-required overtime premium, not the entire pay for overtime hours). The $6,000 is included in Jordan’s Form W-2 wages. Jordan meets all other eligibility requirements and is below the MAGI phaseout threshold. Jordan has $11,000 of potential itemized deductions, and the standard deduction is $15,750. Which treatment is correct?

Include the $6,000 in wages, use the $15,750 standard deduction, and claim the $6,000 as an additional deduction from AGI.

In 2025, a taxpayer has AGI of $80,000 and paid $9,000 of otherwise qualifying medical bills. Insurance reimbursed $1,000 of those bills. The taxpayer also paid $1,200 for an ordinary fitness-club membership used for general health. Assuming the taxpayer itemizes, what is the Schedule A medical-expense deduction?

$2,000

For 2025, a single taxpayer paid $7,200 in state income taxes, $6,000 in general sales taxes (including sales tax on a qualifying vehicle purchase), and $3,500 in deductible real property taxes. The taxpayer's income is well below the SALT phase-down threshold. What is the largest allowable Schedule A state and local tax deduction from these amounts?

$10,700

For 2025, Taylor paid $8,000 of qualifying mortgage interest on acquisition debt within the applicable limit, $6,000 of mortgage principal, and $1,200 of homeowners insurance on a personal residence. Taylor also paid $500 to attend a fundraising dinner hosted by a qualified charity; the fair market value of the dinner was $150. In addition, Taylor contributed $400 to a political candidate’s campaign. All necessary records and charitable substantiation were obtained. Before comparing itemized deductions with the standard deduction, how much of these payments is potentially deductible on Schedule A?

$8,350

During 2025, a casual gambler had $9,000 in gambling winnings and $13,000 in documented gambling losses. Assuming the taxpayer itemizes, what is the maximum gambling-loss deduction on Schedule A for 2025?

$9,000

A single taxpayer has a $2,000 net short-term capital loss and a $4,500 net long-term capital loss for 2025, with no other capital transactions. The taxpayer has enough taxable income to use the full $3,000 capital-loss deduction. Which capital loss carries forward to 2026?

$3,500 long-term loss only

In 2025, a beneficiary receives $50,000 of life insurance proceeds because a relative died. The policy was not transferred for value. The insurer also pays $700 of separately stated interest earned while holding the death benefit. How much is generally included in the beneficiary’s federal gross income?

$700

In 2025, a taxpayer has $55,000 of taxable income, including $2,000 of qualified dividends and $3,000 of net long-term capital gain from regular publicly traded stock. There are no special-rate collectibles or real-estate gains. Which amount may qualify for preferential capital-gain tax rates rather than ordinary income tax rates?

$5,000

A sole proprietor purchases and uses $500 of ordinary office supplies for the business during 2025. Where does this expense belong in the individual income tax formula?

Deductions for AGI

During 2025, a student receives stock as a gift from a grandparent. The grandparent’s adjusted basis was $8,000, and the stock was worth $23,000 on the date of the gift. No gift tax was paid. The student later sells the stock for $25,000. Assume no selling expenses or other basis adjustments. What is the student’s realized gain?

$17,000

A taxpayer’s 2025 federal income tax before credits is $3,400. The taxpayer can use a $1,000 nonrefundable tax credit in full and has $3,000 of federal income tax withholding. Assume no other taxes, credits, or payments. What is the refund or amount due?

$600 refund

A business buys an office building and its land in April 2025. Renovations are completed, and the building is ready and available for business use on July 15, 2025. Which statement is correct?

The building is generally 39-year nonresidential real property, depreciated beginning in July using the mid-month convention; land is not depreciable.

In 2025, a single taxpayer has a $2,000 net short-term capital gain and a $6,000 net long-term capital loss, with no other capital transactions. Assume sufficient taxable income to use the full allowed deduction. How much net capital loss can the taxpayer deduct against other income in 2025, and what capital-loss carryover remains?

$3,000 deduction; $1,000 long-term capital-loss carryover.

On June 1, 2025, a business places $10,000 of qualifying 5-year equipment in service. It uses 200% declining-balance MACRS and the half-year convention, takes no §179 deduction, and elects out of bonus depreciation for the 5-year class. Using the provided MACRS half-year convention table, what is the first-year MACRS deduction?

MACRS Half-Year Convention Table (IRS Table A-1, excerpt)

Recovery year	3-year	5-year	7-year
1	33.33%	20.00%	14.29%
2	44.45%	32.00%	24.49%
3	14.81%	19.20%	17.49%
4	7.41%	11.52%	12.49%
5	—	11.52%	8.93%
6	—	5.76%	8.92%
7	—	—	8.93%
8	—	—	4.46%

$2,000

A calendar-year business places only two fully business-use assets in service during 2025: $60,000 of 5-year machinery in Q1 and $50,000 of 5-year computer equipment in Q4. It elects a $10,000 §179 deduction on the Q4 equipment (all limitations are satisfied) and elects out of bonus depreciation for the 5-year class. Which convention applies to the remaining MACRS basis?

Half-year, because Q4 has $40,000 of remaining basis out of $100,000 total—exactly 40%.

On March 10, 2025, a business buys qualifying used machinery from an unrelated seller for $40,000 and places it in service. It uses the machine 100% for business, properly elects a $10,000 §179 deduction, and is eligible for 100% bonus depreciation on the remaining basis. It does not elect out of bonus. Which treatment is correct?

$10,000 under §179, $30,000 bonus depreciation, and $0 regular MACRS.